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Overview on Taxability Overview on Taxability of Educational of Educational

InstitutionsInstitutions

Presented by :CA Sanjay K. Agarwal

Exemption U/s 10(23C)Exemption U/s 10(23C)Relevant clauses are as under :Relevant clauses are as under :(iiiab) Any University or other educational institution (iiiab) Any University or other educational institution

existing solely for educational purposes and not for existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially purposes of profit, and which is wholly or substantially financed by the Government.financed by the Government.

(iiiad) Any University or other educational institution (iiiad) Any University or other educational institution

existing solely for education purposes and not for existing solely for education purposes and not for purposes of profit if the aggregate annual receipts of purposes of profit if the aggregate annual receipts of such university or educational institution do not such university or educational institution do not exceed the amount of annual receipts as may be exceed the amount of annual receipts as may be prescribed. (Amount prescribed is Rs. 1 Crore) prescribed. (Amount prescribed is Rs. 1 Crore)

contdcontd…………

(vi)(vi) Any University or other educational Any University or other educational

institution existing solely for educational purposes institution existing solely for educational purposes and not for purposes of profit, other than those and not for purposes of profit, other than those mentioned in (mentioned in (iiiabiiiab) or sub clause () or sub clause (iiiadiiiad) and which ) and which may be approved by the may be approved by the prescribed authority.prescribed authority.

Note: Prescribed authority is Chief Commissioner or Director GeneralOnly authority empowered to grant approval can do soOnly authority empowered to grant approval can do so--Power cannot be Power cannot be delegateddelegated--MaharashtraMaharashtra Academy of Engineering and Educational Research Academy of Engineering and Educational Research v. Director General of Incomev. Director General of Income--tax (Investigation)[2009] 319 ITR 399(Bom.)tax (Investigation)[2009] 319 ITR 399(Bom.)

Case lawCase lawOrissa Trust of Technical Education v. CCIT [2009] 178 TAXMAN 363 (ORISSA)

Whether prescribed authority for necessary approval relating to period from 1-4-1999 to 3-4-2001 was CBDT and it was only thereafter that such power of approval came to be vested in Chief Commissioner and, therefore, Chief Commissioner could not deal with application for approval relating to period 1999-

2001 -

Held, yes -

Whether nature of approval contemplated under section 10(23C)(vi) requires approval from prescribed authority for each year; a common order passed on applications for several years would be without jurisdiction -

Held, yes

BackgroundBackgroundEarlier (Prior to Finance Act, 2001)Earlier (Prior to Finance Act, 2001)a.a.

organisation registered u/s 10(23C) were not subjected to organisation registered u/s 10(23C) were not subjected to conditions as specified u/s 11,12,12A and 13.conditions as specified u/s 11,12,12A and 13.

b.b.

The organisation registered u/s 10(23C) were not required The organisation registered u/s 10(23C) were not required to file Income tax return or, further the clause of spending to file Income tax return or, further the clause of spending at least 75% was also not applicableat least 75% was also not applicable

Finance Act 2001 imposed the condition of spending Finance Act 2001 imposed the condition of spending at least 75 % of income, where Finance Act 2002 at least 75 % of income, where Finance Act 2002 has further increased the quantum of spending of has further increased the quantum of spending of income to be at least 85%.income to be at least 85%.The Finance Act 2002 has further inserted S. The Finance Act 2002 has further inserted S. 139(4C) thereby requiring such institution to file 139(4C) thereby requiring such institution to file their returns as per the provisions of S. 139(1).their returns as per the provisions of S. 139(1).

Guidelines for approval of Universities, Guidelines for approval of Universities, Educational InstitutionsEducational Institutions

Under Rule 2CA any University or other Educational Under Rule 2CA any University or other Educational Institution whose aggregate annual receipt exceeds Institution whose aggregate annual receipt exceeds Rs.1 Crore refer to in subRs.1 Crore refer to in sub--clause (vi) of section clause (vi) of section 10(23C) is required to file an application for approval 10(23C) is required to file an application for approval in Form No. 56D to the Chief Commissioner or in Form No. 56D to the Chief Commissioner or Director General of Income Tax. Director General of Income Tax. [First proviso to [First proviso to section 10(23C)].section 10(23C)].

Before approving any University or other Educational Before approving any University or other Educational Institution, Chief Commissioner or Director General of Institution, Chief Commissioner or Director General of Income Tax may call for such documents (including Income Tax may call for such documents (including audited annual accounts) or information, as the case audited annual accounts) or information, as the case may be as it thinks necessary in order to satisfy itself may be as it thinks necessary in order to satisfy itself about the genuineness of the activities and the about the genuineness of the activities and the prescribed Authority may also make such enquires as prescribed Authority may also make such enquires as it deems necessary in this behalf. it deems necessary in this behalf. [Second proviso to [Second proviso to section 10(23C)].section 10(23C)].

Guidelines for approval of Universities, Guidelines for approval of Universities, Educational InstitutionsEducational Institutions

Delay in presenting application for approval to Delay in presenting application for approval to avail exemption avail exemption u/su/s 10(23C)(vi) cannot be 10(23C)(vi) cannot be condoned as there is no provision for condonation condoned as there is no provision for condonation of delay in the Act. of delay in the Act. Roland Educational and Charitable trust v. CCIT & Roland Educational and Charitable trust v. CCIT & (2009) 221 CTR (Ori)88(2009) 221 CTR (Ori)88

DintinguishedDintinguished

fromfromPadmashree Krutarth Acharya Institute of Padmashree Krutarth Acharya Institute of Engineering and Technology v. Chief CIT [2009] Engineering and Technology v. Chief CIT [2009] 309 ITR 13 (309 ITR 13 (OrissaOrissa))

Wherein it was held, that the Wherein it was held, that the

Commissioner was to decide the application for Commissioner was to decide the application for condonation of delay on the merits. condonation of delay on the merits.

Analysis of Section 10(23C) in relation to Analysis of Section 10(23C) in relation to Educational InstitutionsEducational Institutions

Any University or Educational Institution as prescribed Any University or Educational Institution as prescribed under section 10(23C)(vi), shall under section 10(23C)(vi), shall [Third Proviso to section [Third Proviso to section 10(23C)]10(23C)]

a)a)

apply its income or accumulate wholly and exclusively apply its income or accumulate wholly and exclusively for for the objects for which it is establishedthe objects for which it is established

and in case more and in case more than 15% of income is accumulated after 1.4.2002, the than 15% of income is accumulated after 1.4.2002, the period of accumulation of the amount exceeding 15% of period of accumulation of the amount exceeding 15% of its Income, in no case shall exceed 5 years.its Income, in no case shall exceed 5 years.

Note: Chief Commissioner rightly refused exemption where the assessee trust failed to apply 85% of income . Dr. Maharaj Krishana Kapur Educational Charitable Trust and Management Society v. Union Of India [2009] 180 TAXMAN 420 (PUNJ. & HAR.) AND Commissioner of IncomeCommissioner of Income--tax v. Sir M. tax v. Sir M. VisveswarayaVisveswaraya Educational Trust [2009] 319 ITR 0425 (Educational Trust [2009] 319 ITR 0425 (KarKar.).)

contdcontd……..b)b)

Shall not invest or deposit its funds other thanShall not invest or deposit its funds other than--(i)(i)

Any assets where such assets form part of the corpus Any assets where such assets form part of the corpus as on 1as on 1stst

June, 1973.June, 1973.((iaia))

Any asset, being equity shares of public company Any asset, being equity shares of public company where such assets form part of the corpus as on 1where such assets form part of the corpus as on 1stst

June, 1998. June, 1998.

(ii)(ii)

Any assets being debentures issued by, or on behalf Any assets being debentures issued by, or on behalf of any company or corporation acquired before 1of any company or corporation acquired before 1stst

March, 1983.March, 1983.

(iii)(iii)

Any accretion to the shares forming part of the Any accretion to the shares forming part of the corpus mentioned in subcorpus mentioned in sub--clause (i) and subclause (i) and sub--clause clause ((iaia), by way of bonus shares allotted to any university ), by way of bonus shares allotted to any university or other educational institution.or other educational institution.

(iv)(iv)

Voluntary contribution received and maintained in Voluntary contribution received and maintained in the form of Jewellery, Furniture or any article as the the form of Jewellery, Furniture or any article as the Board may by notification in the official gazette Board may by notification in the official gazette specifyspecify

for any period during the previous year otherwise for any period during the previous year otherwise then in any one or more of the firms or modes then in any one or more of the firms or modes specified specified u/su/s

11(5). 11(5).

Analysis of Section 10(23C) in relation to Analysis of Section 10(23C) in relation to Educational InstitutionsEducational Institutions

If the Educational Institution as specified u/s If the Educational Institution as specified u/s 10(23C)(vi) carries on any business then exemption 10(23C)(vi) carries on any business then exemption shall be available in respect of business income only if shall be available in respect of business income only if the business is incidental to the attainment of its the business is incidental to the attainment of its objectives and separate books of accounts are objectives and separate books of accounts are maintained by it in respect of such business . maintained by it in respect of such business . [[Seventh Proviso to section 10(23C)].Seventh Proviso to section 10(23C)].

An order granting registration or refusing registration An order granting registration or refusing registration should be passed within 12 months from the end of should be passed within 12 months from the end of the month in which the application is received by the month in which the application is received by prescribed authority. prescribed authority. [Ninth Proviso to section [Ninth Proviso to section 10(23C) w.e.f. 13/07/2006].10(23C) w.e.f. 13/07/2006].

Analysis of Section 10(23C) in Analysis of Section 10(23C) in relation to Educational Institutionsrelation to Educational Institutions

If the income of Educational Institution referred If the income of Educational Institution referred u/su/s10(23C)(vi) exceeds maximum amount which is not 10(23C)(vi) exceeds maximum amount which is not chargeable to tax in any previous year then it shall chargeable to tax in any previous year then it shall get its accounts audited in respect of that year and get its accounts audited in respect of that year and furnish the audit report furnish the audit report in form 10BBin form 10BB, along with the , along with the return of income. return of income. [Tenth Proviso to section 10(23C)].[Tenth Proviso to section 10(23C)].

Where Educational Institution referred Where Educational Institution referred u/su/s10(23C)(vi) does not apply its income during the year 10(23C)(vi) does not apply its income during the year of receipt and accumulates it, any payment or credit of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution out of such accumulation to any trust or institution registered registered u/su/s 12AA or to any institution registered 12AA or to any institution registered u/su/s 10(23C)(iv),(v), (vi), (via) shall not be treated as 10(23C)(iv),(v), (vi), (via) shall not be treated as application of incomeapplication of income. . [12[12thth Proviso to section Proviso to section 10(23C)].10(23C)].

Analysis of Section 10(23C) in Analysis of Section 10(23C) in relation to Educational Institutionsrelation to Educational Institutions

Any Educational Institution referred u/s 10(23C)(vi), Any Educational Institution referred u/s 10(23C)(vi), (via) did not applied 85% of its income as per clause (via) did not applied 85% of its income as per clause (a) of third proviso to section u/s 10(23C) or does not (a) of third proviso to section u/s 10(23C) or does not invest as per clause (b) to third proviso to section invest as per clause (b) to third proviso to section 10(23C) or the activities of such Educational 10(23C) or the activities of such Educational Institution are not found genuine or are not being Institution are not found genuine or are not being carried out in accordance with all or any of the carried out in accordance with all or any of the conditions subject to which it was notified and conditions subject to which it was notified and approved then the Govt. or Prescribed Authority may approved then the Govt. or Prescribed Authority may at any time after giving reasonable opportunity of at any time after giving reasonable opportunity of being heard may rescind the notification or withdraw being heard may rescind the notification or withdraw the approval. the approval. [Thirteenth Proviso to section 10(23C)].[Thirteenth Proviso to section 10(23C)].

Gems of judiciaryGems of judiciary

National Horticulture Board v. CCIT [2009] 176 TAXMAN 167 (PUNJ. & HAR.)

Petitioner-board was set up by Government of India as an autonomous society under Societies Registration Act, 1860, to promote integrated development in Horticulture - Petitioner further submitted that it was exempt under section 10(23C)(iv) in years from 1987-88 to 2007-08 and was also registered as a trust under section 12A - However, after amendment of section 10(23)(iv) on 30-3-2007, authority to grant exemption was vested in Chief Commissioner instead of Central Government and petitioner made an application to said authority.Chief Commissioner dismissed application on ground that audit reports in Form No. 10BB were not filed with returns and same were filed later, but were not dated as required under 10th proviso to said provision. Whetherprovision having been substantially complied with, audit report shouldhave been taken into account even if, strictly speaking, it was not filedwith return and not in Form No. 10BB but in Form No. 10B as stated inimpugned order .Held, yes.


[2010] 188 TAXMAN 402 (PUNJ. & HAR.) Pinegrove International Charitable Trust vs

union of India:

To decide entitlement of an institution for exemption under section 10(23C)(vi), test of predominant object of its activity

has to be applied by posing question

whether it exists solely for education and not to earn profit and merely because profits have resulted from activity of imparting education would not result in change of character of an institution that it exists solely for educational purpose .

Contd….

contdcontd……..

And that capital expenditure incurred wholly and exclusively for objects of education is entitled to exemption and would not constitute part of total incomeWhether educational institutions, which are registered as societies, would continue to retain their character as such and would be eligible to apply for exemption under section 10(23C)(vi) -Held, yes


[2009] 185 TAXMAN 255 (DELHI) Digember Jain Society for Child Welfare v. DGIT (Exemption)Assessee-society was established in year 1969 and was duly registered under Societies Registration Act, 1860 -

Since its inception, assessee was imparting education to public at large by running schools in various cities –

For relevant assessment years, assessee-society filed application seeking continuation of exemption of its income under section 10(23C)(vi) -

Director General of Income-tax (Exemptions) refused to grant exemption mainly on ground that assessee-

society was having multiple objects, of which education was one of them;

it would mean that assessee could pursue even non-educational objects in coming years, if it deemed fit -

It was seen from record that assessee-society had mainly been formed with objective of carrying out educational activity and there was no profit motive

Contd….

contdcontd……..

It was also noted that respondent had denied exemption to assessee-society merely on suspicion that it might deviate from its objective of education in future – Held that in aforesaid circumstances, assessee could be given benefit of exemption under section 10(23C)(vi) subject to an affidavit of undertaking given by assessee-society that it would not breach any of conditions or stipulations imposed by respondent in terms of third proviso to section 10(23C)(vi) and further, that surplus funds would be utilized only for educational purposes and would not be diverted to other non-educational objectives.


Jaypee Institute of Information Technology Society vs. DGIT(E) [2009] 185 TAXMAN 110 (DELHI):

Whether if a university, imparting formal education by a systematic instruction, introducescourses with objective of ‘greater interface with society through extra mural extension and field action related programmes’, these are not objectives independent of education but are an aid to education -

Held, yes

contdcontd……..Assessee was a registered society and was imparting formal education by running an institute of information technology -On its application, UGC conferred status of deemed university upon assessee-institute subject to condition that institute would revise/amend its Memorandum of Association [MOA]/Rules as per UGC model/guidelines - Assessee, therefore, revised/amended its MOA as per UGC guidelines by including objective of undertaking extra mural status, extension programmes and field outreach activities to contribute to development of society - Notwithstanding that, prescribed authority rejected assessee’s application for grant of exemption under section 10(23C)(vi) for reason that assessee-institute did not exist solely for educational purposes, as purpose/objective of greater interface with society through extra mural extension and field action related programmes was also stipulated in MOA and same, according to revenue, did not relate to formal education – Held that on facts, assessee-institute fulfilled all requirement of section 10(23C)(vi) and was, thus, entitled to grant of registration and, consequently, exemption under aforesaid provision.


ICAI Accounting Research Foundation v. DGIT (Exemptions) [2009] 183 TAXMAN 462 (DELHI)Assessee-foundation was set up by Institute of Chartered Accountants of India (ICAI) with main objective to make it an academy for imparting, spreading and promoting knowledge, learning, education and understanding in various fields related to profession of accountancy -

It was a

deemed company under section 25 of Companies Act,1956 and was having status of an academy -

Assessee filed application for claiming exemption under section 10(23C)(iv) taking plea that it was covered by expression ‘charitable purposes’

as

defined in section 2(15)

contdcontd……..

Held that merely on undertaking research projects at instance of Government/local bodies and taking remuneration for such projects, essential character of assessee-foundation could not be said to have been converted into one which carried on commerce or business or activity or rendering any service in relation to trade, commerce or business. Therefore, assessee was to be granted exemption under section 10(23C)(iv).

Gems Gems ––

Judgment in AgainstJudgment in AgainstIn In CIT vs. M/s Queens Educational Society ITA CIT vs. M/s Queens Educational Society ITA No. 103 of 2007 [2009] 177 Taxmann 326 No. 103 of 2007 [2009] 177 Taxmann 326 (Uttrakhand) [In SLP (c) No. 3042 of 2008 ,leave (Uttrakhand) [In SLP (c) No. 3042 of 2008 ,leave granted and hearing expedited by the Hongranted and hearing expedited by the Hon’’ble ble Supreme Court of India],Supreme Court of India],

it has been held that the it has been held that the

investment in the fixed assets like furniture and investment in the fixed assets like furniture and buildings are the properties of the society and may be buildings are the properties of the society and may be connected with the imparting of education but the same connected with the imparting of education but the same has been constructed and purchased out of income from has been constructed and purchased out of income from imparting the education with a view to expand the imparting the education with a view to expand the institution and to earn more income, therefore the order institution and to earn more income, therefore the order of ITAT granting exemption u/s 10(23C)(iiiad) was set of ITAT granting exemption u/s 10(23C)(iiiad) was set aside, following the decision of Apex Court in the case of aside, following the decision of Apex Court in the case of Aditanars Educational Institution v. Addl CIT as reported Aditanars Educational Institution v. Addl CIT as reported in [1997] 224 ITR 310 & High Court in [1992] 3 SCC 890 in [1997] 224 ITR 310 & High Court in [1992] 3 SCC 890 Municipal Corporation of Delhi v. Children Book Trust [1992] 3 SCC 390

Distinction No. 1Distinction No. 1

Distinction of Judgments Followed with Distinction of Judgments Followed with due respect to Uttrakhand High Court. due respect to Uttrakhand High Court.

Distinction of Judgment followedDistinction of Judgment followed

That the first judgment followed in the case as That the first judgment followed in the case as

pronounced by Honpronounced by Hon’’ble Supreme Court of India in the ble Supreme Court of India in the case of case of Aditanars Educational Institution v. Addl CIT as Aditanars Educational Institution v. Addl CIT as reported in [1997] 224 ITR 310reported in [1997] 224 ITR 310

is infact a favorable is infact a favorable

Judgment as the same has been wrongly interpreted Judgment as the same has been wrongly interpreted and not used in its harmony since it provides that and not used in its harmony since it provides that ““After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit.

The decisive or acid test is whether on an overall view of the matter, the object is to make profit.

ContdContd……..

In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity.”

further the pronouncement speaks of

Institutions that are not running its own educational institution but establishing, running, managing or assisting colleges or schools or other educational institutions solely for educational purposes and in that regard raising or collecting funds, donations, gifts, etc. are also falls under the preview of “

Other Educational

Institutions”

as referred u/s 10(22). Therefore the facts of the pronouncement so referred are distinctive with that of Queens Educational Society since there is a question about availability of exemption u/s 10(23C)(iiiad), where there was no dispute about its being educational institution.

ContdContd……..

Further the Further the second para of Aditnara Educational Trustsecond para of Aditnara Educational Trust as observed in Queens Merry i.e. as observed in Queens Merry i.e. ““if one looks at the if one looks at the

objects clause, there are other noble and pious objects objects clause, there are other noble and pious objects but assessee society has nothing to achieve the other but assessee society has nothing to achieve the other objects except perusing the main objects of providing objects except perusing the main objects of providing education and earning profit. Further with profit earned education and earning profit. Further with profit earned the society has strengthened or enhanced its capacity to the society has strengthened or enhanced its capacity to earn more rather than to undertake any other activities earn more rather than to undertake any other activities to fulfill other noble objects for the cause of poor and to fulfill other noble objects for the cause of poor and needy people or Advancement of religious purposeneedy people or Advancement of religious purpose””

is is

not found in the report as referred in ITR, based on not found in the report as referred in ITR, based on which the decision has been taken that the educational which the decision has been taken that the educational Institution was enhancing its capacity to earn more.Institution was enhancing its capacity to earn more.

Distinction of Judgment followedDistinction of Judgment followedThat the second judgment followed in the case of That the second judgment followed in the case of assessee as pronounced by Honassessee as pronounced by Hon’’ble Supreme Court of ble Supreme Court of India in the case of MCD vs. Children Book Trust etcIndia in the case of MCD vs. Children Book Trust etc. . does not relate to assessee in any way since there in the does not relate to assessee in any way since there in the definition of Charitable Purpose as per section 115(4) of definition of Charitable Purpose as per section 115(4) of the Delhi Municipal Corporation Act, 1957 is discussed the Delhi Municipal Corporation Act, 1957 is discussed where as in the instant case definition of charitable where as in the instant case definition of charitable purpose as defined u/s 2(15) read with S. 10(23C)(iiiad) purpose as defined u/s 2(15) read with S. 10(23C)(iiiad) should had been analyzedshould had been analyzed, since the Act itself spells the , since the Act itself spells the definition of charitable purpose it would be improper to definition of charitable purpose it would be improper to move beyond the Act, reliance in this regard could be move beyond the Act, reliance in this regard could be place on place on HonHon’’ble Karnataka High Court in the case of ble Karnataka High Court in the case of Commissioner of GiftCommissioner of Gift--tax v. Bhoomiamma (K.) [1986] tax v. Bhoomiamma (K.) [1986] 158 ITR 0615,158 ITR 0615,

where in it has been held that " A statute where in it has been held that " A statute

is the will of the legislature, and the fundamental rule of is the will of the legislature, and the fundamental rule of interpretation, to which all others are subordinate, is interpretation, to which all others are subordinate, is that a statute is to be expounded 'according to the that a statute is to be expounded 'according to the intent of them that made it'.intent of them that made it'.

ContdContd……....

If the words of the statute are in themselves precise and If the words of the statute are in themselves precise and unambiguous, no more is necessary than to expound unambiguous, no more is necessary than to expound those words in their natural and ordinary sense, the those words in their natural and ordinary sense, the words themselves in such case best declaring the words themselves in such case best declaring the intention of the intention of the legislegis--

leture. further leture. further HonHon’’ble Gujarat ble Gujarat

High Court in the case of Bardolia Textile Mills v. High Court in the case of Bardolia Textile Mills v. IncomeIncome--tax Officer [1985] 151 ITR 0389tax Officer [1985] 151 ITR 0389

where in it has where in it has

been held that The provisions of a taxing statue have to been held that The provisions of a taxing statue have to be read and understood according to the language of the be read and understood according to the language of the statute and if the plain language compels the court to statute and if the plain language compels the court to adopt an approach different from that dictated by any adopt an approach different from that dictated by any rule of logic the court may have to adopt it. Normally, rule of logic the court may have to adopt it. Normally, unless it is shown that the context calls for a different unless it is shown that the context calls for a different meaning to be given to the term used in the same meaning to be given to the term used in the same

section, one would be justified in assuming that the section, one would be justified in assuming that the term has been used so as to have the same meaning. term has been used so as to have the same meaning.

Judicial pronouncement available u/s Judicial pronouncement available u/s 10(22) are not taken care of ?10(22) are not taken care of ?

Distinction Distinction --

2 2

S. 10(22) vis a vis10 (23C)(iiiad) & 10(23C)(vi)S. 10(22) vis a vis10 (23C)(iiiad) & 10(23C)(vi)

S. 10(22)S. 10(22)Any income of a university or other educational institution, exiAny income of a university or other educational institution, existing sting solely for educational purposes and not for purpose of profit.solely for educational purposes and not for purpose of profit.

S. S. 10(23C)(iiiad)10(23C)(iiiad)

provides as underprovides as under

: : Any Any UniversityUniversity

or other or other educational institutioneducational institution

existing existing solely for solely for educationeducation

purposespurposes

and and not for purposes of profitnot for purposes of profit

if the if the aggregate aggregate annual receiptsannual receipts

of such university or educational institution of such university or educational institution do not do not exceedexceed

the amount of annual receipts as may be prescribed. (Amount the amount of annual receipts as may be prescribed. (Amount prescribed is prescribed is Rs. 1 CroreRs. 1 Crore))

S. S. 10(23C)(vi)10(23C)(vi)

providesprovides

as underas under

: : Any Any UniversityUniversity

or or other educational institutionother educational institution

existing existing solely for solely for educationeducation

purposespurposes

and and not for purposes of profitnot for purposes of profit, , other thanother than

those those mentioned in mentioned in ((iiiabiiiab) or sub clause (iiiad)) or sub clause (iiiad)

and which may be approved and which may be approved by the prescribed by the prescribed authorityauthority.(prescribed.(prescribed

authority is Chief authority is Chief Commissioner or Director General)Commissioner or Director General)

ContdContd……....S.N o

Particulars 10(22) 10(23C)(iiiad) 10(23C)(vi)

1. Profit Motive NO NO NO

2. Purpose Education

Yes Yes Yes

3. Omission/ Introduction

Omitted vide Finance No. 2 Act 1998 w.e.f. 01/04/1999

inserted vide Finance No. 2 Act 1998 w.e.f. 01/04/1999

inserted vide Finance No. 2 Act 1998 w.e.f. 01/04/1999

4. Limiting Factor N.A. Annual Receipt up to Rs. 1 Crore.

Not falling in S. 10(23C)(iiiad), prior approval required

From the above mentioned table it could be noticed that S. 10(22) has been omitted to split it in to two classes of educational institutions one is whose Annual receipt is less than one crore and other is whose annual receipt is more than one crore and approved by prescribed authority. Therefore the intent of the law while introducing S. 10(23C)(iiiad) and S. 10(23C)(vi) is same as behind S. 10(22), therefore all the judgment passed u/s 10(22) shall be applicable to S. 10(23C) subject to similar facts.

Gems of judiciaryGems of judiciaryOne or two factors in any year could not determine if the One or two factors in any year could not determine if the Institution exists for educational purpose or have profit motiveInstitution exists for educational purpose or have profit motive. .

The condition precedent for claiming the exemption under s. The condition precedent for claiming the exemption under s.

10(22) of the I.T. Act, 1961, is that the university or educatio10(22) of the I.T. Act, 1961, is that the university or educational nal institution must exist solely for educational purposes and not finstitution must exist solely for educational purposes and not for or purposes of profit. If this condition is fulfilled then the factpurposes of profit. If this condition is fulfilled then the fact

that that the recipient or owner of the income is a person other than the the recipient or owner of the income is a person other than the educational institution or university would not affect the positeducational institution or university would not affect the position. ion. The expression "existing" in s. 10(22) must not be judged with The expression "existing" in s. 10(22) must not be judged with reference to the facts of the relevant year only. Though the facreference to the facts of the relevant year only. Though the facts of ts of the relevant year would be very material whether an institution the relevant year would be very material whether an institution exists or is existing solely for any particular purpose or not exists or is existing solely for any particular purpose or not cannot be judged only by the facts of one year. All the factors cannot be judged only by the facts of one year. All the factors will will have to be taken into consideration, namely, the clause or the have to be taken into consideration, namely, the clause or the power enabling the institution to function, its activities in gepower enabling the institution to function, its activities in general, neral, etc. Neither the fortuitous factor of having a large surplus in etc. Neither the fortuitous factor of having a large surplus in any any particular year nor the solitary fact of diverting some of the particular year nor the solitary fact of diverting some of the income to objects charitable but not educational would be income to objects charitable but not educational would be

decisive of the matter.decisive of the matter.Case law : Birla Vidhya Vihar Trust v. Commissioner of IncomeCase law : Birla Vidhya Vihar Trust v. Commissioner of Income--tax tax [1982] 136 ITR 0445 [Cal.][1982] 136 ITR 0445 [Cal.]

Gems of judiciaryGems of judiciaryConditions precedent to the availability of exemption to Conditions precedent to the availability of exemption to educational institution.educational institution.

Under the provisions of section 10(22) of the IncomeUnder the provisions of section 10(22) of the Income--tax tax Act, 1961, the conditions precedent to the availability of Act, 1961, the conditions precedent to the availability of exemption to an educational institution can be stated exemption to an educational institution can be stated thus: thus: (a) the educational institution must actually exist (a) the educational institution must actually exist for the application of the said section and the mere for the application of the said section and the mere taking of steps would not be sufficient to attract the taking of steps would not be sufficient to attract the exemption; (b) the educational institution need not be exemption; (b) the educational institution need not be affiliated to any university or Board, in fact a society need affiliated to any university or Board, in fact a society need not itself be imparting education and it is enough if it not itself be imparting education and it is enough if it runs some schools or colleges;runs some schools or colleges;

(c)(c)

the educational the educational

institution must exist solely for educational purposes institution must exist solely for educational purposes and not for purposes of profit but merely because there is and not for purposes of profit but merely because there is a surplus of receipts over expenditure, it cannot be said a surplus of receipts over expenditure, it cannot be said that the educational institution exists for profitthat the educational institution exists for profit;;

ContdContd……..

(d) an entity may have income from different sources but (d) an entity may have income from different sources but if a particular income is from an educational institution if a particular income is from an educational institution which exists solely for educational purposes and not for which exists solely for educational purposes and not for purposes of profit, then that income would be entitled to purposes of profit, then that income would be entitled to exemptionexemption

and further the income should be directly and further the income should be directly

relatable to the educational activity. When the section relatable to the educational activity. When the section says that the institution should not exist for purposes of says that the institution should not exist for purposes of profit, it does not mean that in the framing of objectives profit, it does not mean that in the framing of objectives of the institution the item of surplus of receipts over of the institution the item of surplus of receipts over expenses should be completely absent.expenses should be completely absent.

Case Law : Case Law : Educational Institute of American Hotel and Educational Institute of American Hotel and Motel Association v. Commissioner of IncomeMotel Association v. Commissioner of Income--tax [1996] tax [1996] 219 ITR 0183 [Authority for Advance Ruling]219 ITR 0183 [Authority for Advance Ruling]

Gems of judiciaryGems of judiciaryDirector of Income-tax (Exemption) v. Moti Bagh Mutual Aid Education[2008] 298 ITR 0190 [Delhi High Court]The assessee had been running a school since 1960. The assessee was granted exemption under section 10(22) of the Income-tax Act, 1961, on the ground that it was a society existing solely for educational purposes and not for any profit motive. Even for the

years subsequent to the assessment year 1996-97 the assessee had been granted exemption under section 10(22). For assessment year

1996-97 it was held that there were discrepancies in the accounts which led the Assessing Officer to the conclusion that it was not existing solely for educational purposes but also for a profit motive. The Hon’ble High Court Held, that details of construction of the school building through P had been filed. Even if there were minor contradictions or deviations in the accounts of the assessee, that by itself did not substantiate the allegation that the assessee did

not exist solely for educational purposes or that it existed partly for a profit motive. The fact that the assessee had been granted exemption under section 10(22) of the Act since 1960 and even subsequent to the assessment year in question was a factor that could not be easily overlooked. The assessee was entitled to exemption under section

10(22) for the assessment year 1996-97.

Gems of judiciaryGems of judiciaryIt is revenue that has to prove that assessee was existing It is revenue that has to prove that assessee was existing for Profit motivefor Profit motive. . For purposes of allowability of exemption under section 10(22) of the Income-tax Act, 1961, the Revenue can evaluate each year to find out whether the institution existed during the relevant year solely for educational purposes or for purposes of profit. But this has to be done by the Revenue. The assessee can only put all material facts, its activities and income from which reasonable inference is to be drawn by the Assessing Officer and case made out against the assessee that it existed for profit. The assessee cannot prove that it does not exist for profit. There were specific objects in the constitution of the assessee-

society prohibiting use of the profit for benefit of any individual. It was to be used for the purposes of the school during its existence and even on the dissolution of the institution. Thus, the assessee was an

institution existing solely for educational purposes. There was no material on record to show that the society was existing for purposes of profit. Even the Assessing Officer did not challenge the fact

that the assessee was existing for educational purposes. The Revenue had to show that exemption was wrongly granted and the assessee in fact

was existing for purposes of profit. Assistant Commissioner of IncomeAssistant Commissioner of Income--tax v. South Point tax v. South Point Montessori School2007] 294 ITR (A.T.) 0149 [IncomeMontessori School2007] 294 ITR (A.T.) 0149 [Income--tax tax Appellate TribunalAppellate Tribunal----Gauhati]Gauhati]


Until revenue is not able to point any distinctive Until revenue is not able to point any distinctive features in year under consideration, assessee is features in year under consideration, assessee is entitled to exemption u/s 10(22).entitled to exemption u/s 10(22).

Case law : Case law : Director of Income Tax vs. Tagore Education Director of Income Tax vs. Tagore Education Society. [2002] 124 Taxman 22 (Delhi.).Society. [2002] 124 Taxman 22 (Delhi.).

Gems of judiciaryGems of judiciaryIs educational Institution deriving income from any Is educational Institution deriving income from any other source barred relief u/s 10(22) of the Act ?other source barred relief u/s 10(22) of the Act ?

If the institution exist solely for the purpose of If the institution exist solely for the purpose of education and it derives income from any other education and it derives income from any other source and if that income is used only for the source and if that income is used only for the purpose of education, then, it will come u/s 10(22) purpose of education, then, it will come u/s 10(22) of the Income Tax Act.of the Income Tax Act.

Case Law : Brahmin educational Society v. ACIT Case Law : Brahmin educational Society v. ACIT (1997) 227 ITR 317 (Ker.) (1997) 227 ITR 317 (Ker.)

Gems of judiciaryGems of judiciaryCIT vs. Pulikkal Medical Foundation (P) .Ltd. (1994) 210 ITR CIT vs. Pulikkal Medical Foundation (P) .Ltd. (1994) 210 ITR 299 (Ker.)299 (Ker.)

where in it is held that

For the purpose of examining the claim under section 10(22), first objects of the academy and its

activities should be scrutinized, primary and incidental . . . It will be, therefore, obvious that the income of the assessee is exempt under section 10(22) if the assessee is an educational institution or an establishment which primarily engages itself in educational activities. The institution, however, may incidentally take other activities

for the benefit of the students or in furtherance of their education. It

may invest its funds in any manner, but the income generated there from must be utilised exclusively for educational activities. If these requirements are complied with, the assessee's income shall be exempt under section 10(22) of the Act.All cumulative factors will have to be taken into consideration,

namely, the clause or the power enabling the institution to function, its activities in general, etc. Neither the fortuitous factor of having large surplus in any particular year, nor the solitary fact of diverting some income of the source concerned to objects charitable but not educational by itself would be decisive of the matter and in that context the facts relevant to the relevant year would be very material though not conclusive."

Gems of judiciaryGems of judiciaryPowers given under Instrument establishing Institution Powers given under Instrument establishing Institution to trustees should also be taken care of while to trustees should also be taken care of while determining if the same is established for profit motive.determining if the same is established for profit motive.The objects of the assessee-trust made it clear that the trust was established to undertake, to run and improve schools and to upgrade schools belonging to the Board. The trustees had been given power to construct buildings and to lease out the properties. Though the powers given to the trustees were in the objects clause, a reading of the objects clause showed that they were mere powers conferred on the trustees and they could not be regarded as objects of the trust. A distinction should be made between the corpus, objects and powers of the trustees. When the distinction between

the objects and powers was kept in mind.Case law : Commissioner of Income-tax v. Kshatriya Girls Schools Managing Board [2000] 245 ITR 0170 [Madras High Court]

Distinction No.3Distinction No.3

Application of Section 11 to 13 Application of Section 11 to 13 –– Alternatively plea should be taken.Alternatively plea should be taken.

S.10(23C) vis a vis 11 to 13.S.10(23C) vis a vis 11 to 13.

Section 13 would have no application for Section 13 would have no application for Institutions Registered u/s 10(23C).Institutions Registered u/s 10(23C).

Case Law : Commissioner of IncomeCase Law : Commissioner of Income--tax Vs. Lagan tax Vs. Lagan Kala Upvan [2003] 259 ITR 0489 (Del).Kala Upvan [2003] 259 ITR 0489 (Del).

The Distinction as between corpus and The Distinction as between corpus and other funds, registration u/s 12A is other funds, registration u/s 12A is inapplicable for sections 10(23C) inapplicable for sections 10(23C) institution.institution.

Legal CompliancesLegal CompliancesBasis of

differencesSection 10(23C) Section 12 AA Section 80G

When is Application required to be made?

Required to be made by educational institutions where:Gross annual receipt exceeds Rs. 1 crore; orIs not substantially financed by the Government.

Required to be made by all NGOs in order to claim exemption u/s 11

Required to be made by all NGOs which wishes to take the benefit under this section

Form for the above Application

Form 56 D Form 10 A Form 10 G

Rules applicable 2CA 17A 11AA

Time limit for filing of application

Before the end of the previous year

Before the end of the previous year

NA.

Time limit for approval

Within 12 months from the end of the month in which application is received

Within 6 months from date of application

Within 6 months from date of application

Time period for exemption

Lifetime Lifetime LifetimeTime limit of Upto 5 Years is omitted by Finance (No.) 2 Act,2009

Withdrawal of approval

By CCIT By CIT By CIT/CCIT

Legal CompliancesLegal CompliancesBasis of differences Section 10(23C) Section 12 Section 80GExemption w.e.f. The year in which it is

granted and thereafter The year in which it is granted and thereafter

Appeal on rejection Not provided. However writ can be filed in the High Court

Lies to Appellate Tribunal

Lies to Appellate Tribunal

Form of Audit Report

Form 10BB (Rule 16CC) Form 10B (Rule 17B)

Form of Application for accumulation

Not prescribed Form 10

Last date of filing of form for accumulation

Before the due date of filing of return u/s 139

Before the due date of filing of return u/s 139

Power to condone belated application

No No

Form for filing of return

ITR 7 ITR 7

Note:

In case of Private Trusts the Return has to be filed in ITR 5

Gems of judiciaryGems of judiciaryIn the case of CIT v. Saraswath Poor Students In the case of CIT v. Saraswath Poor Students Fund (1984) 150 ITR 142 (Karn.)Fund (1984) 150 ITR 142 (Karn.)the High Court held that :the High Court held that :

a)a)

The exemption u/s 10(22) is in respect of the whole The exemption u/s 10(22) is in respect of the whole of the income of an assessee.of the income of an assessee.

b)b)

The exemption u/s 10(22) is not restricted to such The exemption u/s 10(22) is not restricted to such income applied or accumulated for charitable or income applied or accumulated for charitable or religious purpose as provided u/s 11.religious purpose as provided u/s 11.

c)c) The scope of section 10(22) is very much wider than The scope of section 10(22) is very much wider than that of section 11.that of section 11.

ContdContd……CBDT in Instruction No. 1112 dated, October 29, 1977CBDT in Instruction No. 1112 dated, October 29, 1977

had clearly stated that a trust, which runs an had clearly stated that a trust, which runs an educational institution is itself eligible for exemption educational institution is itself eligible for exemption u/s 10(22) and the question of exemption u/s 11 would u/s 10(22) and the question of exemption u/s 11 would need consideration only if it does not fall u/s 10(22), need consideration only if it does not fall u/s 10(22), however where the surplus of educational institution at however where the surplus of educational institution at the end of the year is diverted for the personal use of the the end of the year is diverted for the personal use of the proprietor thereof, or if the surplus can be used for non proprietor thereof, or if the surplus can be used for non educational purposes, it cannot be said that the educational purposes, it cannot be said that the institution is existing solely for educational purpose and institution is existing solely for educational purpose and such institution will not be liable for exemption u/s such institution will not be liable for exemption u/s 10(22). But in such cases, the applicability of section 11 10(22). But in such cases, the applicability of section 11 can be examined, and if the conditions laid down can be examined, and if the conditions laid down therein are satisfied, the income will be exempt u/s 11therein are satisfied, the income will be exempt u/s 11. .

Gems of JudiciaryGems of Judiciary

Institution availing exemption u/s 10(23C)(vi) can validly Institution availing exemption u/s 10(23C)(vi) can validly apply for registration u/s 12A to avail exemption u/s 11 & 12. apply for registration u/s 12A to avail exemption u/s 11 & 12.

Income derived by a trust running an educational institution or Income derived by a trust running an educational institution or by by an educational institution per se is deemed to be the income an educational institution per se is deemed to be the income derived by such trust or institution from property held under trderived by such trust or institution from property held under trust ust and will be exempt from income subject to the exceptions provideand will be exempt from income subject to the exceptions provided d in sec.13(3) of the Act in sec.13(3) of the Act --

Merely because Sec.10 (23C) provides for Merely because Sec.10 (23C) provides for exemption of the income of an educational institution, it does nexemption of the income of an educational institution, it does not ot follow that such institution cannot avail exemption u/s 11/12 follow that such institution cannot avail exemption u/s 11/12 subject to conditions being fulfilled subject to conditions being fulfilled ––

Appeal of the Department Appeal of the Department dismissed by the Tribunal by following the Supreme Court's dismissed by the Tribunal by following the Supreme Court's

decision in CIT Vs Bar Council of Maharashtra (130 ITR 28) decision in CIT Vs Bar Council of Maharashtra (130 ITR 28)

Case Law : Case Law : AssttAsstt. Director Of Income. Director Of Income--tax (Exemptions) v. tax (Exemptions) v. rajasthanirajasthani

ShikshaShiksha

SamithiSamithi, , NizamabadNizamabad

in the ITAT in the ITAT ––

HYDERABAD, ITA Nos. 80 HYDERABAD, ITA Nos. 80 &81/Hyd/08 &81/Hyd/08


Aryan Educational Society v. Commissioner of Income Tax [2006] 281 ITR (A.T.) 0072 [ITAT-Delhi].Money spent on acquisition of assets for educational Money spent on acquisition of assets for educational institutions amounts to application of funds for institutions amounts to application of funds for charitable purpose. A society formed with the charitable purpose. A society formed with the dominant objective of imparting education and dominant objective of imparting education and running schools could not be denied registration running schools could not be denied registration u/su/s

12A of the Income Tax Act 1961 on the ground that 12A of the Income Tax Act 1961 on the ground that some profits had been earned. If the provisions of Ss. some profits had been earned. If the provisions of Ss. 11, 12, and 12A of the Act were complied with by the 11, 12, and 12A of the Act were complied with by the educational institution, registration could not be educational institution, registration could not be denied. Further, the surplus had been used for denied. Further, the surplus had been used for acquiring computers and for construction of another acquiring computers and for construction of another school building. school building.

Judicial Pronouncement Judicial Pronouncement on Miscellaneous Issues.on Miscellaneous Issues.


Whether if the requirements of sec. 10(23C) are not Whether if the requirements of sec. 10(23C) are not complied with, exemption can be denied complied with, exemption can be denied u/su/s 1111

CIT vs. Mahasabha Gurukul

Vidyapeeth Haryana[2010] 2 DTLONLINE 283 (Punj. & Har.)

Held that once all requisite conditions for exemption under section 11 had been met by assessee, an educational society, then there would be no bar for assessee to seek exemption under section 11 even if conditions under section 10(23C)(vi) had not been complied with


Assam State Text Book Production and Publication Corporation Assam State Text Book Production and Publication Corporation Ltd. v. Commissioner of IncomeLtd. v. Commissioner of Income--tax [2009] 319 ITR 317(SC)tax [2009] 319 ITR 317(SC)Held, reversing the decision of the Held, reversing the decision of the GauhatiGauhati

High Court in CIT High Court in CIT v. Assam State Book Production and Publication Corporation v. Assam State Book Production and Publication Corporation Ltd. [2007] 288 ITR 352 , that the assessee was entitled to Ltd. [2007] 288 ITR 352 , that the assessee was entitled to the exemption under section 10(22). The assessee was a the exemption under section 10(22). The assessee was a Government company and it was controlled by the State of Government company and it was controlled by the State of Assam ; the Central Board of Direct Taxes had granted Assam ; the Central Board of Direct Taxes had granted similar exemption by letter dated August 19, 1975 to the similar exemption by letter dated August 19, 1975 to the Tamil Tamil NaduNadu

Text Books Society which performed activities Text Books Society which performed activities similar to those of the assessee ; and the Central Government similar to those of the assessee ; and the Central Government had by letter dated July 9, 1973, stated that all Statehad by letter dated July 9, 1973, stated that all State--

controlled Educational Committees/Boards had been controlled Educational Committees/Boards had been constituted to implement the educational policy of the States constituted to implement the educational policy of the States and consequently they should be treated as educational and consequently they should be treated as educational institutions. [Matter remanded.] institutions. [Matter remanded.] CIT v. Rajasthan State Text Book Board [2000] 244 ITR 667 CIT v. Rajasthan State Text Book Board [2000] 244 ITR 667 ((RajRaj) and Secondary Board of Education v. ITO [1972] 86 ITR ) and Secondary Board of Education v. ITO [1972] 86 ITR 408 (408 (OrissaOrissa) followed.) followed.


Where the institution is in process of starting Where the institution is in process of starting educational activity but not yet commenced any such educational activity but not yet commenced any such activity.activity.

Shavak Shiksha Samiti vs CIT 104 TTJ 127 (ITAT Shavak Shiksha Samiti vs CIT 104 TTJ 127 (ITAT ––Delhi)Delhi)The applicant trust was a society registered under the The applicant trust was a society registered under the Societies Registration Act 1860 and was in the process of Societies Registration Act 1860 and was in the process of setting up a school on a plot allotted to it. The trustsetting up a school on a plot allotted to it. The trust’’s main s main object of imparting education came within the purview of object of imparting education came within the purview of charitable purpose and it did not exist for profits, since the charitable purpose and it did not exist for profits, since the surplus, if any, were not to be distributed among its surplus, if any, were not to be distributed among its members. Therefore, the trust was entitled to registration members. Therefore, the trust was entitled to registration under s.12A of the Income Tax Act 1961. under s.12A of the Income Tax Act 1961.

Gems of judiciaryGems of judiciaryWhether exemption can be denied on disallowance of Whether exemption can be denied on disallowance of

certain expensescertain expensesITO v. ITO v. VirendraVirendra

Singh Memorial Singh Memorial ShikshaShiksha

SamitiSamiti

[2009] 121 TTJ (Luck.) 829/ [2009]18 DTR 502[2009] 121 TTJ (Luck.) 829/ [2009]18 DTR 502Mere disallowance of certain expenses can add to Mere disallowance of certain expenses can add to the surplus but cannot become the basis for the surplus but cannot become the basis for denying exemption denying exemption u.su.s

10(22)/10(23C)(iiiad).Further provisions of sec. 10(22)/10(23C)(iiiad).Further provisions of sec. 10(22) cannot be given restricted meaning and 10(22) cannot be given restricted meaning and exemption available exemption available u.su.s

10(22) could cover income 10(22) could cover income

chargeable chargeable u/su/s

68 also.68 also.Other rulings .[2010]001 ITR(Trib.)0527(ITAT Other rulings .[2010]001 ITR(Trib.)0527(ITAT CochCoch.) DIT .) DIT (Exemption) v. (Exemption) v. RaunaqRaunaq

Education Foundation [2004] 294 ITR Education Foundation [2004] 294 ITR 76 (Delhi) 76 (Delhi)

SituationSituationA society with a main object of spreading education has opened A society with a main object of spreading education has opened 3 schools, where in the turnover from the schools individually 3 schools, where in the turnover from the schools individually do not exceed Rs. 1 crore, however on aggregate basis it do not exceed Rs. 1 crore, however on aggregate basis it exceeds Rs. 1 crore. exceeds Rs. 1 crore. ––

Application of S. 10(23C)(iiiad) or S. Application of S. 10(23C)(iiiad) or S. 10(23C)(vi) ?10(23C)(vi) ?The limit of one crore shall be considered with regard to any The limit of one crore shall be considered with regard to any university or other educational institution. In the instant caseuniversity or other educational institution. In the instant case

education society is itself an educational institution. education society is itself an educational institution. The Supreme The Supreme Court in the case of Aditanar Educational Institution v. Addl. CCourt in the case of Aditanar Educational Institution v. Addl. CIT IT (1997) 224 ITR 310(SC(1997) 224 ITR 310(SC),),

observed that it will be rather unreal and observed that it will be rather unreal and hyper technical to hold that the assesseehyper technical to hold that the assessee--society is only a financing society is only a financing body and will not come within the scope of body and will not come within the scope of ““other educational other educational institutioninstitution””. The object of the assessee. The object of the assessee--society is to establish, run, society is to establish, run, manage or assist colleges or schools or other educational manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard institutions solely for educational purposes and in that regard to to raise or collect funds, donations, gifts, etc. Colleges and schoraise or collect funds, donations, gifts, etc. Colleges and schools are ols are the media through which the assessee imparts educational and the media through which the assessee imparts educational and effectuates its objects. In substance and reality, the sole purpeffectuates its objects. In substance and reality, the sole purpose for ose for which the assessee has come into existence is to impart educatiowhich the assessee has come into existence is to impart education n at the levels of colleges and schools and so, such an educationaat the levels of colleges and schools and so, such an educational l society should be regarded as an society should be regarded as an ““educational institutioneducational institution””. Thus, in . Thus, in this case availability of exemption as per section 10(23C) (iiiathis case availability of exemption as per section 10(23C) (iiiad) shall d) shall be examined in relation to Education Society and not in respect be examined in relation to Education Society and not in respect of of every school managed by the society. every school managed by the society.

ContdContd……..Further, Further, the language used in clause (iiiad) of section the language used in clause (iiiad) of section 10(23C) provides that the aggregate annual receipt of 10(23C) provides that the aggregate annual receipt of such other educational institution should not exceed such other educational institution should not exceed Rs.1 crore. Therefore, the department can legitimately Rs.1 crore. Therefore, the department can legitimately tag the turnover of all the school run by such tag the turnover of all the school run by such Education Society.Education Society.

The Education Society which is not The Education Society which is not

eligible for exemption under section 10(23C)(iiiad), can eligible for exemption under section 10(23C)(iiiad), can still avail of exemption under section 10(23C(vi), still avail of exemption under section 10(23C(vi), subject to approval by the DGIT on fulfillment of subject to approval by the DGIT on fulfillment of certain conditions. If the conditions under section certain conditions. If the conditions under section 10(23C) (vi) are also not fulfilled, then 10(23C) (vi) are also not fulfilled, then the society can the society can avail of exemption under section 11 of the Income Tax avail of exemption under section 11 of the Income Tax Act and for the purpose of availing of such exemption, Act and for the purpose of availing of such exemption, the society must apply for registration under section the society must apply for registration under section 12A. Thus, it is advisable that the society should apply 12A. Thus, it is advisable that the society should apply for registration under section 12A at earliest. for registration under section 12A at earliest.

Gems of judiciaryGems of judiciaryWill educational Institution charging fees for education loose Will educational Institution charging fees for education loose exemption ?exemption ?HonHon’’ble Supreme Courtble Supreme Court

in the case of in the case of P.C. Raja Ratnam P.C. Raja Ratnam Institution V. Municipal Corporation of Delhi (1990) 181 ITR Institution V. Municipal Corporation of Delhi (1990) 181 ITR 354 (SC)354 (SC)

has held that mere imparting of Education is enough has held that mere imparting of Education is enough to claim exemption,to claim exemption,That the test of charitable purpose is satisfied by the proof ofThat the test of charitable purpose is satisfied by the proof of

any of the three conditions, namely, relief of the poor, educatiany of the three conditions, namely, relief of the poor, education on or medical relief. The fact that some fee was charged from the or medical relief. The fact that some fee was charged from the students was not decisive inasmuch as the proviso to section students was not decisive inasmuch as the proviso to section 115(4)(a) of the Delhi Municipal Corporation Act, 1957, 115(4)(a) of the Delhi Municipal Corporation Act, 1957, indicated that the expenditure incurred in running the society indicated that the expenditure incurred in running the society might be supported either wholly or in part by voluntary might be supported either wholly or in part by voluntary

contributions. Besides, the Explanation to section 115(4)(a) contributions. Besides, the Explanation to section 115(4)(a) was, in terms, inclusive and not exhaustive. was, in terms, inclusive and not exhaustive.

More Case Laws : Shanti Devi Progressive Education Society Vs. More Case Laws : Shanti Devi Progressive Education Society Vs. Asst. Director of IncomeAsst. Director of Income--tax (Exemption) [1999] 236 ITR (A.T.) tax (Exemption) [1999] 236 ITR (A.T.) 0040 (ITAT 0040 (ITAT ––

Del)Del)

Gems of judiciaryGems of judiciaryDoes Educational activity necessarily to be taken place Does Educational activity necessarily to be taken place for claiming exemption u/s 10(23C)?for claiming exemption u/s 10(23C)?Section 10(23C) of the IncomeSection 10(23C) of the Income--tax Act,1961 tax Act,1961 ––

Educational Educational institutions /university institutions /university ––

Assessment year 2003Assessment year 2003--04 04 ––

AssesseeAssessee’’s s claim for exemption under section 10(23C)(iiiad) was rejected byclaim for exemption under section 10(23C)(iiiad) was rejected by

revenue authorities on ground that no educational activity had revenue authorities on ground that no educational activity had started in relevant accounting yearstarted in relevant accounting year--

On instant appeal, it was On instant appeal, it was seen that during relevant year activities undertaken by assesseseen that during relevant year activities undertaken by assessee e were for purpose of settingwere for purpose of setting--up an educational institution up an educational institution ––

Further , assesseeFurther , assessee’’s books of account showed that apart from s books of account showed that apart from miscellaneous expenses, processing fees were paid for availing omiscellaneous expenses, processing fees were paid for availing of f affiliation for setting affiliation for setting ––up of an educational institution up of an educational institution ––

Assesee Assesee had also paid certain amount for purchase of land for settinghad also paid certain amount for purchase of land for setting--up up of an educational institution of an educational institution ––

Whether on facts, it could be Whether on facts, it could be concluded that for year under appeal , assesseeconcluded that for year under appeal , assessee--trust was trust was existing solely for educational purposes and not for purposes ofexisting solely for educational purposes and not for purposes of

profit and, thus, it was entitled to exemption under section profit and, thus, it was entitled to exemption under section 10(23C)(iiiad) 10(23C)(iiiad) ––

Held, yes Held, yes Case Law : IncomeCase Law : Income--tax Officer, Wardtax Officer, Ward--1, Hisar v. Baba Dhall 1, Hisar v. Baba Dhall Educational Society of India [2009] 27 SOT 391 (DELHI Educational Society of India [2009] 27 SOT 391 (DELHI --

ITAT)ITAT)


Society running educational institution is also entitled to exemSociety running educational institution is also entitled to exemptionptionSection 10(22) of the IncomeSection 10(22) of the Income--tax Act, 1961, exempts income of a tax Act, 1961, exempts income of a "University or other educational institution existing solely for"University or other educational institution existing solely for

educational purposes" from incomeeducational purposes" from income--tax. The word "institution" has tax. The word "institution" has not been defined in the Act. There is no reason why an educationnot been defined in the Act. There is no reason why an educational al society cannot be regarded as an educational institution if thatsociety cannot be regarded as an educational institution if that

educational society is running educational institutions.educational society is running educational institutions.[The High Court directed the Income[The High Court directed the Income--tax Officer to consider afresh tax Officer to consider afresh whether the assessee, a society running educational institutionswhether the assessee, a society running educational institutions, , came within the ambit of section 10(22)] came within the ambit of section 10(22)] Case Law : Katra Education Society v. ITO [1978] 111 ITR 0420 [ACase Law : Katra Education Society v. ITO [1978] 111 ITR 0420 [All.] ll.] further approved in (1997) 90 Taxman 528 (SC) further approved in (1997) 90 Taxman 528 (SC) AditanarAditanar

educational educational Institution vs. Additional CIT Institution vs. Additional CIT

contdcontd……..

An educational society or trust or other similar body running anAn educational society or trust or other similar body running aneducational institution solely for educational purposes and not educational institution solely for educational purposes and not for for the purpose of profit could be regarded as the purpose of profit could be regarded as ““other educational other educational institutioninstitution”” coming with in S. 10(22) of the Act and that it will be coming with in S. 10(22) of the Act and that it will be rather unreal and hyper technical to hold that the assessee rather unreal and hyper technical to hold that the assessee society is only a financing body and will not come with in the society is only a financing body and will not come with in the scope of scope of ““ other educational institutionother educational institution”” as specified u/s 10(22).as specified u/s 10(22).

Case law : Aditanar Educational Institution v. Addl. CIT [1997] Case law : Aditanar Educational Institution v. Addl. CIT [1997] 224 224 ITR 310 (SC).ITR 310 (SC).A trust or a society which runs, maintains or assists such A trust or a society which runs, maintains or assists such institution may well be eligible for exemption, even if it does institution may well be eligible for exemption, even if it does not not own the institution, If its sole object is education.own the institution, If its sole object is education.

Case law : Case law : Secondary Board Of education v. ITO (1972) 86 ITR 408 Secondary Board Of education v. ITO (1972) 86 ITR 408 ((OriOri.), .), KatraKatra

Educational Society v. ITO [1978] 111 ITR 420 (All.), Educational Society v. ITO [1978] 111 ITR 420 (All.), CIT v. CIT v. SindhuSindhu

VidhyaVidhya

MandalMandal

Trust [1983] 142 ITR 633 (Trust [1983] 142 ITR 633 (GujGuj), ), Director of IncomeDirector of Income--tax Vs. Sir tax Vs. Sir ShriShri

Ram Education Foundation Ram Education Foundation [2003] 262 ITR 0164, DCIT [2003] 262 ITR 0164, DCIT vsvs

MahathamaMahathama

Educational Society Educational Society 2007 15 SOT 44 ITAT 2007 15 SOT 44 ITAT --

HyderabadHyderabad. .

Gems of judiciaryGems of judiciaryFunds Diverted to business organizations where trustees were having substantial interest, since interest @ of 18% was charged, the educational institution shall not be disentitled from exemption u/s 10(23C)

(i) where none of the objects of the trust showed that profit-making was one of the objects of the trust and Surplus had been generated only incidentally and the same was part of the surplus because of interest received by the trust on diversion of funds. The surplus was being accumulated for the purpose of purchasing more land to start the second unit of the school. Then it could not be said that the trust was existing for the purpose of earning profit. There was no evidence to show that any amount was either spent towards personal benefit of the trustees. There was no denial that funds were lent out to various business organizations in which the trustees or their relatives had substantial interest. But interest had been charged on such advances at eighteen per cent. per annum wherever there was

a debit balance in the account and such interest had been charged even up to 1999-2000. Interest had not been charged because later on such advances had been treated as land advances. There is no requirement under section 10(22) that funds should be invested in specified assets as contemplated under section 11(5) or in any other particular manner.

ContdContd…………

Therefore, the observation of the Commissioner (Appeals) that interest was never paid and no security was taken had no force. Circular No. 712 dated July 25, 1995, issued by the Central Board of Direct Taxes makes it clear that there is no mandate in the Act to invest the funds in any particular fashion for the purposes of section 10(22).

Thus, it was proper on the part of the trust to park the surplus funds with the business organizations where the trustees and/or their relatives had a hold because then the trustees could exercise some kind of control on such investments

and had the satisfaction that such investments were safe. Case Law : A. R. R. Trust vs. Assistant Commissioner of Income-tax (Income-tax Appellate Tribunal--Chennai)

[2006] 280 ITR (A.T.) 0152

Gems of judiciaryGems of judiciaryApplication of Income outside India does not disentitle educatioApplication of Income outside India does not disentitle educational nal institution exemption u/s 10(23C)(vi), however the prescribed auinstitution exemption u/s 10(23C)(vi), however the prescribed authority thority is always empowered to grant registration subject to certain is always empowered to grant registration subject to certain conditions.conditions.The expression 'in India' The expression 'in India' --

the third proviso to Section 10(23C)(vi), the third proviso to Section 10(23C)(vi), which refers to monitoring conditions, confines the words applicwhich refers to monitoring conditions, confines the words application ation of income to the objects for which the Institution is establisheof income to the objects for which the Institution is established. The d. The third proviso does not use the words in India in the matter of third proviso does not use the words in India in the matter of application or accumulation of income though in several other application or accumulation of income though in several other sections like Sections 10(20A), 10(22B) and 11(1)(a) etc., Parlisections like Sections 10(20A), 10(22B) and 11(1)(a) etc., Parliament ament has used the words in Indiahas used the words in India. . Therefore, the words in India cannot be Therefore, the words in India cannot be read into the third proviso. Further the Prescribed Authority isread into the third proviso. Further the Prescribed Authority is

at at liberty to prescribe any condition, including certain percentageliberty to prescribe any condition, including certain percentage

of of accounting money to be spent in India but cannot reject the accounting money to be spent in India but cannot reject the application application

Case law :AMERICAN HOTEL LODGING ASSOCIATION EDUCATION Case law :AMERICAN HOTEL LODGING ASSOCIATION EDUCATION INSTITUTE Vs CBDT 2008INSTITUTE Vs CBDT 2008--TIOLTIOL--115115--SCSC--ITIT


Decision further applied inDecision further applied in

Ewing Christian College Society v. Chief Ewing Christian College Society v. Chief Commissioner of IncomeCommissioner of Income--tax[2009] 318 ITR tax[2009] 318 ITR 0160(All)0160(All)

Gems of judiciaryGems of judiciaryCity Montessori School (City Montessori School (RegdRegd.) v. Union of .) v. Union of India[2009] 315 ITR 048(All)India[2009] 315 ITR 048(All)Society providing not only traditional education Society providing not only traditional education but also preparing students by providing guidelines but also preparing students by providing guidelines to get admissions in professional institutions to to get admissions in professional institutions to pursue their higher studiespursue their higher studies----Society engaged in Society engaged in educational activities falling under "charitable educational activities falling under "charitable purpose"purpose"----Society satisfying all statutory Society satisfying all statutory requirements for getting exemption under section requirements for getting exemption under section 10(23C)(vi)10(23C)(vi)----No material to prove surplus earned by No material to prove surplus earned by society society utilisedutilised

for personal profit or gain of anyone for personal profit or gain of anyone

including founderincluding founder--manager/directormanager/director----Chief Chief Commissioner directed to grant approval under Commissioner directed to grant approval under section 10(23C)(vi) section 10(23C)(vi)

Gems of judiciaryGems of judiciaryWhen the assessee collects money over and above the fees When the assessee collects money over and above the fees prescribed by the Government, whether it constitutes a prescribed by the Government, whether it constitutes a charitable institution or not. charitable institution or not. Capitation fee is nothing but a price for selling education. As Capitation fee is nothing but a price for selling education. As held by the Apex Court, the concept of held by the Apex Court, the concept of ‘‘teaching shopteaching shop’’

is is contrary to the constitutional scheme and is wholly abhorrent contrary to the constitutional scheme and is wholly abhorrent to Indian culture and heritage. Some of the State Legislatures to Indian culture and heritage. Some of the State Legislatures passed legislation prohibiting the collection of capitation fee passed legislation prohibiting the collection of capitation fee and also made the same as a punishable offence. Collection of and also made the same as a punishable offence. Collection of capitation fee is contrary to the Constitutional scheme and capitation fee is contrary to the Constitutional scheme and prohibited by State enactment. When the assessee used the prohibited by State enactment. When the assessee used the charitable activity/educational institution as an apparatus for charitable activity/educational institution as an apparatus for selling the education, the element of charity no longer remains selling the education, the element of charity no longer remains in the activity of the assessee.in the activity of the assessee.VodithalaVodithala

Education society v. ADIT (EXEMPTIONS Education society v. ADIT (EXEMPTIONS --

II), ITAT II), ITAT ––

HYDERABAD, 2008HYDERABAD, 2008--TIOLTIOL--139139--ITATITAT--HYDHYD


Establishment of educational activities taking place in Establishment of educational activities taking place in India is required.India is required.

i.

that for the purpose of exemption under section 10(22) of the Income-tax Act, 1961, the University or other educational institution need not exist in India,

ii.

that, however, the university or other educational institution has to engage in educational activity in India not for profit. It is not beyond the bounds of possibility that Parliament should be willing to forgo a very small percentage of its revenue for the purposes of education, even though it might mean the education of people outside India,

if that education was being provided by a university or other educational institution whose sole purpose was to provide education and not at all to make a profit.

iii.

Even a university or other educational institution established or incorporated outside India can be eligible for the exemption under section 10(22) provided that it exists solely for educational pur-poses and not for purposes of profit.

Contd….

ContdContd……..

iv.

Interpretation of a statutory provision granting exemption which does not stand the test of rationality and will lead to absurd results cannot be accepted.

v.

Each one of the exemptions in section 10 is intended to serve a definite public purpose and is meant to achieve a special object.

vi.

The expression "existing solely for educational purposes and not for purposes of profit" qualifies "a university or other educational institution".

vii.

The expression "existing solely for educational purposes and not for purposes of profit" qualifies "a university or other educational institution".

viii.

Giving a purposeful interpretation of section 10(22), it will be reasonable to hold that in order to be eligible to claim exemption there under the assessee has to establish that it is engaged in some educational activity in India and its existence in this country is not for profit only.

Contd….

ContdContd……..ix.

In a case where a dispute is raised whether the claim for exemption from tax by the assessee is admissible or not, it is necessary for the assessee to establish that it is a part of a university which is

engaged solely or at least primarily for educational purposes and not for purposes of profit and the income in respect of which exemption is claimed is part of the income of the university. The label "university press" is not sufficient to establish that the assessee is engaged in any educational activity.The imparting of education is service to the society. From the language of section 10(22), it does not appear that without any such service in India, the Legislature intended to exempt the total income of the assessee. The requirement of imparting education or some other educational activity in this country can be read into section 10(22). That is the basic assumption of section 10(22). A university established in a foreign country is not excluded from the ambit of section 10(22) in case it is imparting education in India or has

some educational activity in India. It is evident that for the purposes of granting exemption under section 10(22) the Legislature assumed the existence of educational activity in India by a university or other educational institution. The basic requirement of the section is

the existence of "educational purpose" which, in other words, means the imparting of education which has to be in India. The absence of the words "India" in this provision is inconsequential. It has to be

read into section 10(22).

Case law : Oxford University Press v. Commissioner of Income Tax [2001] 247 ITR 0658 [Supreme Court of India]

69

THANK YOU!!!THANK YOU!!!

CA. Sanjay K. AgarwalCA. Sanjay K. Agarwal Member Central CouncilMember Central Council--ICAIICAI

email:email: [email protected]@gmail.com Mobile No. : 9811080342Mobile No. : 9811080342

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